Annual Report Commentary British American Tobacco

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Annual Report commentary to: | Shareholders of British american tobacco plc. | from: | Mr | subject: | Fundamental stock analysis | date: | June 13, 2014 | cc: | Dr | | | Introduction The purpose of this report is to inform current and potential future shareholders of British American Tobacco PLC (BAT) of my analysis of the 2013 annual report and prognosis for the company’s future performances. The analysis is carried out from a long-term investment perspective of 2-5 years. Of the many interesting industry-changing factors, I will in this report focus on the few I find most important. Key figures The key figures prominently displayed on the first few pages emphasize a 2,7% decrease in cigarette volume, a 4% increase in revenue, a 3% increase in net profit and 6% dividends per share. Furthermore, the introduction states that despite declining industry volumes, volatile exchange rates and political instability in many of the company’s markets, BAT performed strongly in 2013. The strategic report clearly gives the impression that the company and the stock are healthy and a good choice for long-term portfolios. I will below examine the financial statements to find out to which extent these key figures do the firm justice. Income statement The revenue increase of 4% is correct except for the fact that exchange rate effects are not taken into account. However, since BAT has presence in over 200 countries, currency speculation is useless, why this measure is appropriate for our purpose. Considering the 2,7% cigarette volume decrease, and the industry average revenue increase of 0,95%, an increase of 4% is truly an achievement. This in combination with slightly increased non-operating costs, resulted in a 3% higher net profit, which is slightly higher than the average analyst estimate. At the current share price, this implies a P/E ratio of 16,65.

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